Trade Small, Manage Risk, and Master Many Trading Strategies

Bruce Kovner – Trade Small, Manage Risk, and Master Many Trading Strategies

Bruce Kovner is an American investor, philanthropist, and hedge fund manager. In 2012, he founded and chaired CAM Capital, which is responsible for investing his private assets, and Kovner Foundation, which oversees his philanthropic activities. He served as Chairman for Caxton Associates, a global macro hedge fund.

Bruce Kovner is most famous for being the second trader to be interviewed in Jack Schwager’s Market Wizard series.

This article looks at Bruce Kovner’s early life and career, and we end the article with some of his most famous trading quotes.

Bruce Kovner’s early life and career

Bruce Kovner - Trading Wisdom

Kovner was born in Brooklyn, NY. His family moved to suburban LA in 1953, where he attended Van Nuys High. Kovner excelled in his academics, played varsity basketball, and was elected student body president and class president in his senior school year. He was an activist in school, leading a team protesting against segregated luncheons. Kovner also organized initiatives to acquire and send writing and educational materials to secondary schools in Kenya.

He went to Harvard College on a scholarship grant to study political economy at the John F. Kennedy School of Government under the influence of three Harvard professors: Edward C. Banfield, Henry Kissinger, and James Q. Kovner enrolled in the Kennedy School of Government for his Ph.D., after he was encouraged by Wilson and Banfield to follow their footsteps into the world of academics. He completed his course work and examinations, but unfortunately, Mr. Kovner left the Ph.D. program to pursue a career in another path.

He was introduced to the financial market by a family friend in 1976. Kovner began learning and researching the nature of commodity, currencies, and debt markets all by himself.

Kovner kick-started his trading career in early 1977 by borrowing $3000 on his MasterCard. He made $1000 profits on his first two trades on the interest rate and copper futures.

However, he made a $22000 loss on his $4000 running position in soybean, which Kovner attributed to his losing control of the trading process in the soybean market. Initially, he had a running profit of $45000 in six weeks, but when prices turned down, he panicked and exited his position losing $23000 in the process. “It helped me understand risk and create structures to control risk,” He said.

He worked as a Senior Trader at Commodities Corporation— later acquired by Goldman Sachs. Kovner founded Caxton as a modern Macro hedge fund some six years later and ran it for over 28 years, making profits in tens of billions of dollars for his client. He has reported his money-making success to “stupid governments,” noting that mistakes by policymakers in governments and central banks cause conditions in the market that can be exploited. In 2011, he retired from the hedge fund after running it for three decades.

In an interview in Market Wizards, he talked exclusively about his trading life and the principles he applied; he puts it, “I would say that risk management is the most important thing to be well understood. Under trade is my second piece of advice. Whatever you think your position ought to be, cut it at least in half. Through bitter experience, I have learned that a mistake in position correlation is the root of some of the most serious problems in trading. If you have eight highly correlated positions, then you are trading one position that is eight times as large.”

Mr. Kovner lives in Florida with his wife and three children.

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Bruce Kovner trading strategy quotes

The article ends with some quotes from Bruce Kovner:

They are able to take positions others are unwilling to take. A greedy trader always blows out (what Kovner is looking for in traders).

For me, technical analysis is like a thermometer.

The more a price pattern is observed by speculators, the more prone you are to have false signals.

By definition, there can only be a relatively small group of superior traders, since trading is a zero-sum game.

The first rule of trading – there are probably many first rules – is don’t get caught in a situation in which you can lose a great deal of money for reasons you don’t understand.

Undertrade, undertrade, and undertrade is the second piece of advice. Whatever you think your position ought to be, cut it at least in half…..Novice Traders trade 5 to 10 times too big. They are taking 5 to 10% risks on a trade they should be taking 1 to 2 percent risks.

The market, of course, is totally impersonal. It doesnæt care whether you make money or not. If you personalize losses, you can’t trade.

If you don’t work very hard, it is extremely unlikely that you will be a good trader.

In a bear market, you have to use sharp countertrend rallies to sell.

How did Bruce Kovner contribute to the trading community?

Bruce Kovner shared his trading principles in an interview in Market Wizards. He highlighted risk management as crucial, advising traders to cut their positions and avoid mistakes in position correlation.

What is the focus of CAM Capital and the Kovner Foundation?

CAM Capital, founded by Bruce Kovner in 2012, manages his private assets, while the Kovner Foundation oversees his philanthropic activities.

What advice did Bruce Kovner give regarding trade size and risk?

Kovner advised traders to undertrade, emphasizing the importance of cutting positions by at least half. He highlighted that novice traders often trade too big, taking risks that should be much smaller.

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